International manufacturer of best cars quality

Franchise Frenzy

In the very early days – from the late 1800s through the first decade of the 1900s — automobiles were bought directly from the factory, even directly from individual builders. Until cars were mass-produced, there was no real need for a network of dealers serving as middlemen.

But by the Teens, with Ford and others making deep inroads in the mass production of automobiles, the system of franchised dealers took off. Early dealers were often bicycle or carriage salesmen, who added motorcars to their product lines. According to author John B. Rae in “American Automobile Manufacturers: The First Forty Years,” many business people were eager to get in on the opportunity to sell cars. Manufacturers therefore were able to cut favorable deals, which had local dealers and their banks financing much of the industry’s early expansion to the mass market. In fact, Rae gives a large part of the credit for the survival of Ford through the depression of 1920-21 to Ford dealers and their banks, who took Ford’s inventory and paid cash for it rather than losing their franchises.

Financing with General Motors

General Motors was the first company to form its own financing operation, in 1919. The financing of cars on “time” would revolutionize car buying. It would prove a boon to dealers, by taking some of the responsibility of arranging financing and collecting payments off their hands. By 1925, three-quarters of all cars in America were bought on installment.

The investment and perseverance of dealers paid off handsomely by the postwar years. By 1947, there were 21,680 franchisees selling American cars in the US, and business was booming. A typical dealer markup in these days was a fairly hefty 25 %. Some dealers took advantage, though, by marking up prices of top-selling cars by 40 % or more. These kinds of practices led to the passage of the US Automotive Information Disclosure Act in 1958, requiring dealers to disclose the uniform “list prices” of cars to consumers.

With strong competition from foreign carmakers beginning in the 1970s, more tension developed between the Big Three carmakers and their franchisees. The American manufacturers were often accused by dealers of using strong-arm tactics to try to push their cars — or simply turning a blind eye as foreign makers outdid them with better-engineered, less-expensive and more-stylish cars.

Quality Counts

While many American dealers were being pressured by the Detroit manufacturers to take cars that might make them a few hundred dollars’ worth of profit if they could move them, Mercedes Benz dealers were making several thousand dollars’ worth of profit on every car due to that company’s emphasis on quality and long-term relationship building, according to author Brock Yates in “The Decline and Fall of the American Automobile Industry.”

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